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Home > News and Publications > Central Bank Reserves

Central Bank Reserves

Subject/Request Details: Central Bank Reserves
Date Released: 6 May 2011
The information below was released following a question about the level of central bank reserves and how this may have implications for monetary policy.
In normal times, the Bank of England (‘The Bank’) uses a reserves averaging scheme to implement Bank Rate (paying Bank Rate on commercial banks' reserve balances, so long as they remained, on average over the period between MPC meetings, close to their voluntary targets). On 5 March 2009, when the Asset Purchase Facility (‘APF’) purchases financed by the creation of central bank reserves were announced, the Bank suspended reserves averaging and started remunerating all reserves balances at Bank Rate.
Reserve balances can be affected by any sterling transaction on the Bank's balance sheet, either assets or liabilities. The current level of reserves is determined by the stock of reserves injected via asset purchases, the level of reserves supplied by long-term repo open market operations, and the net impact of all other sterling ('autonomous factor') flows across the Bank's balance sheet. Reduced demand for borrowing from the Bank in its 3-month long-term repo operations, and a number of autonomous factors (including an increase in the deposit by the Bank of England Asset Purchase Facility Fund (‘BEAPFF’) reflecting its cash holdings), have served to offset some of the rise in reserves via asset purchases.
The monetary policy stance is determined by the MPC's decision on the level of Bank Rate and the stock of asset purchases financed by the issuance of central bank reserves.